It emerged this week that the government is considering scrapping inheritance tax, with government sources refusing to rule out such a move ahead of the general election expected next year.
Inheritance tax is charged at a rate of 40 per cent on estates worth more than £325,000, and has been a significant contributor to the government’s tax receipts.
Between April and August this year, HM Revenue & Customs brought in £3.2bn in inheritance tax, up by around £300m on the same period of last year, official figures have shown.
Mortgage brokers criticised the proposed move, suggesting it will deliver little benefit to normal people and is designed simply to boost the government’s electoral chances.
Move would hold back businesses
Lewis Shaw, owner of Shaw Financial Services, said that dropping inheritance tax now would be “idiotic at best and economically illiterate at worst”.
He noted that small numbers of people pay the tax anyway, as well as the fact that AIM shares and EIS schemes are reliant on inheritance tax remaining in place, and so “could be blown to bits by this policy”.
“It’s a backwards-looking policy that has no purpose except for playing politics and would hold back budding entrepreneurs, whom the government purportedly want to encourage.
“Clearly, Rishi is now scraping the barrel. The government are out of ideas and has reached the end of the road. I think most will agree it’s time for a General Election before we allow the country to fall any further than it already has,” he concluded.
Where else will the money come from?
Peter Stamford, director and lead adviser at Moor Mortgages, was cynical about the government looking to ditch a tax that affects only the most wealthy.
He continued: “Tax has to come from somewhere and if we’re not effectively enforcing business taxes on the biggest companies and we scrap inheritance tax, I just don’t know where it’s going to come from.”
What’s the point?
Dropping inheritance tax would have “little to no impact” on the majority of the public, pointed out Gareth Davies, director of South Coast Mortgage Services.
He added: “This potential move by the Tories smacks of desperation. However, reducing the tax from an astronomical 40% to a more tolerable figure seems fairer.”
Planning will reduce your tax bill already
The worst thing about inheritance tax in its current form is that it can be avoided simply by some smart planning while the person is still alive argued Scott Taylor-Barr, financial adviser at Barnsdale Financial Management
“However, many don’t, either because they don’t think inheritance tax applies to them, or they don’t know they can engage the services of a financial planner and avoid or minimise it, or they simply don’t want to think about their own mortality,” Taylor-Barr added.
Inheritance tax is ‘voluntary’ anyway
David Robinson, co-founder of Wildcat Law, was another broker to describe scrapping inheritance tax as “worse than irresponsible” at a time when government departments are crying out for funding.
Robinson argued that inheritance tax is effectively a “voluntary tax” given there are so many ways to mitigate or outright avoid having to pay it.
He continued: “HT as well as providing much-needed revenue for the Chancellor, also provides a stimulus to the economy as it dissuades people from hoarding large amounts of cash for significant periods of time. Instead most wealthier individuals look to inheritance tax friendly investment options to mitigate their tax risk.”
“While it may be a vote winner in some circles but it belongs to Trussanomics and should be avoided,” Robinson concluded.
It’s not just fat cats that pay inheritance tax
However, some brokers argued it was time to reform the tax so fewer people pay it.
Simon Bridgland, director at Release Freedom, said that the threshold at which point inheritance tax is paid should be hiked as “far too many families have been caught in this net”.
He added that the current inheritance tax rules deter some people from taking risks with their money, such as starting businesses and employing people.
Bridgland continued: “For those who simply inherited a modest estate, good luck to them. Why should they be taxed on it from such a low level? Many people conjure up an image of a fat cat on their super yacht, when they think of IHT, when in fact it’s not the case. Look in a mirror, that’s the person who pays IHT.”
